On March 9, 2010, at a bank in Hefei City, Anhui Province, a Bank of China staff member prepared to count a stack of U.S. dollars and a stack of 100 yuan.
STR/AFP | Getty Images
Chinese authorities are grappling with the yuan’s depreciation as global investment banks forecast the yuan will hit a record low in anticipation of U.S. President-elect Donald Trump’s threat to implement tariffs.
Major investment banks and research firms expect the offshore yuan to depreciate to an average of 7.51 to the U.S. dollar by the end of 2025, according to CNBC forecast calculations of 13 institutions.
That would mark the currency’s lowest level since 2004, according to LSEG data.
Forecast for RMB against USD
| end of 2024 | end of 2025 | |
|---|---|---|
| UBS | 7.30 | 7.60 |
| BNP Paribas | 7.70 | |
| barclays bank | 7.25 | 7.50 |
| JPMorgan Chase | 7.30 | 7.50 |
| body mass index | 7.30 | 7.60 |
| Societe Generale | 7.10 | |
| Morgan Stanley | 7.30 | 7.60 |
| Goldman Sachs | 7.25 | 7.50 |
| Macquarie Group | 7.25 | 7.38 |
| Capital Economics | 7.30 | 8.00 |
| Nomura | 7.50 (expires August 1, 2025) | |
| ING | 7.20 | 7.30 |
| Oxford Economics | 7.40 |
source: Major investment banks and research institutions
Trump said on Monday that he would impose a 10% tariff on all Chinese goods entering the United States. According to the post on his social media platform Truth Social. During his campaign, Trump promised to impose tariffs of 60% or higher on Chinese goods.
Jonas Goltermann, deputy chief market economist at Capital Economics, said, “All else being equal, U.S. tariffs will cause the dollar to appreciate… The economies’ currencies will see the largest monetary adjustments.
Mitul Kotecha, head of Asia FX and emerging market macro strategy at Barclays, predicted that the yuan would need to rise to 8.42 against the dollar to fully consider imposing 60% tariffs on all Chinese goods.
The offshore yuan has fallen more than 2% since the U.S. presidential election on November 5, last trading at 7.2514 on Thursday.
Given the scale of the tariff threat and the extent of the trade imbalance, uncertainty is much higher this time than during Trump’s first term.
Ju Wang
Head of FX and Interest Rate Strategy, Greater China, BNP Paribas
In 2018, when the United States imposed the first round of tariffs on Chinese goods during Trump’s first term, the RMB depreciated by about 5%. According to Reutersand fell another 1.5% the following year when trade tensions intensified.
China maintains tight control over the yuan’s onshore value by setting a daily price and allowing it to trade within a 2% range around that price. Offshore trade is more market-oriented.
Wang Ju, head of foreign exchange and interest rate strategy for Greater China at BNP Paribas, said that given the scale of the tariff threat and the severity of the trade imbalance between China and the United States, “the uncertainty this time is much higher than during Trump’s first term.” .
“Any apparent lack of consistency in the new U.S. government’s policy statements will also increase uncertainty,” Wang added. He expected China’s central bank to take “countercyclical measures to prevent excessive appreciation of the yuan exchange rate.”
The People’s Bank of China’s Problem
Chinese authorities face tough calls to protect the yuan from sharp depreciation while trying to get the economy back on track. Economists say a sharp depreciation of the yuan could exacerbate capital outflows and impact financial markets.
Cedric Chehab, chief economist at BMI, said: “The RMB exchange rate against the US dollar is already close to the US$7.3 level that the authorities have been trying to defend. A breach of this level would increase the volatility in China’s financial markets, which the People’s Bank of China wants to avoid.
But Chehab added that the challenge is that the central bank may not want to raise interest rates to stem the yuan’s decline, as that would put pressure on already faltering economic growth.
This year, the People’s Bank of China capped the daily reference rate at $7.20 to support the value of the onshore yuan.
The central bank also retained several major measures this month Policy rates were kept unchanged to stabilize the currency.
Central bank officials said in a statement that the yuan exchange rate would remain “basically stable at a reasonable and balanced level.” statement last week.
Weilian Chang, global FX and credit strategist at DBS Bank, said the stabilization measures would curb some depreciation expectations and support broader Asian FX stability, and he hoped that “when U.S. interest rates weaken further, an economic recovery is inevitable.” ”.
U.S. dollar index gives up gains Last Friday, Trump announced the nomination of Scott Bessent as the next U.S. Treasury Secretary, and the index fell from a two-year high of 108.09.
While hedge fund manager Bessant supports Trump’s tariffs, he advocates a “tiered” approach. “Such a policy stance should help curb trade risks, create negotiation space and ultimately curb excessive RMB outflows,” Zhang added.
About The Author
